The plaintiff, Anderson Street Banksmeadow Pty Limited (“Anderson Street”) is a builder. By a construction contract dated 1 November 2012 (“the Contract”), Anderson Street retained the first defendant, Helcon Pty Limited (“Helcon”), to perform piling work at a property in Banksmeadow.

The third defendant (“the Adjudicator”) is an adjudicator appointed under the Act. On 13 February 2013, the Adjudicator made a determination under the Act that Anderson Street should pay to Helcon a “progress payment” within the meaning of s 8 of the Act of $104,857.50 (“the Determination”).

In determining the amount of the progress payment the Adjudicator decided that: –

(a) Anderson Street was not entitled to deduct an amount of $50,006.40 from the amount due to Helcon (“the Deduction”); and

(b) Helcon was entitled to an amount of $54,000 in relation to a variation claimed under the construction contract (“the Variation”).

An Adjudication Certification pursuant to s 24 of the Act was issued on 1 March 2013. On the same day, Helcon filed the Adjudication Certificate as a judgment in the District Court of New South Wales pursuant to s 25 of the Act.

Anderson Street commenced these proceedings on 26 March 2013.

On 12 April 2013 Hammerschlag J: –

(a) ordered Anderson Street to pay into Court $115,000 to abide the determination of these proceedings;

(b) noted the undertaking of Helcon that, subject to compliance by Anderson Street with the order in (a) above, it would not seek to enforce its judgment in the District Court until the determination of these proceedings; and

(c) made directions as to the future conduct of the matter and set the matter down for hearing on 1 May 2013.

Anderson Street seeks a declaration that the Determination is void on the basis that: –

(a) as to the Deduction, the Adjudicator resolved the dispute upon a basis not advocated by Helcon and in circumstances where Anderson Street was not afforded an opportunity to make submissions in respect of it (thus denying Anderson Street procedural fairness); and

(b) as to the Variation, the Adjudicator failed to comply with her duty “to come to a view as to what is properly payable” as discussed by Brereton J in Pacific General Securities Ltd v Soliman & Sons Pty Ltd[2006] NSWSC 13 at [82].

Decision

The Determination is void.

The Deduction

Anderson Street claimed the Deduction by reason of damage caused by Helcon to a Sydney Water sewer pipe on 19 November 2012 (“the Incident”).

The basis on which Anderson Street claimed the Deduction was set out in the Payment Schedule dated 10 January 2013 pursuant to s 14 of the Act. That Payment Schedule was served in response to a Payment Claim served by Helcon and dated 24 December 2012 pursuant to s 13 of the Act.

In its Payment Schedule, Anderson Street stated: –

“…following Helcon penetrating and damaging a Sydney Water Sewer pipe [Anderson Street] incurred direct costs. Those costs can be withheld because the contract allows [sic] Helcon liable for damage they cause to the property of third parties …The costs claimed include actions taken … to protect people and property, mitigate the damage and analyse the cause of the problem. Helcon have admitted liability.”

Anderson Street thus contended that Helcon’s obligation to pay for the damage to the sewer pipe arose contractually and that, in any event, Helcon had admitted liability for the damage. The Adjudicator rejected the contention that Helcon had admitted liability. There is no challenge to that finding.

So far as the Contract is concerned, by cl 40.2.1, Helcon warranted that it had “examined the Site and surrounds and satisfied itself through its own investigation as to the condition and characteristics which may be encountered on, in or under the Site”.

In its Adjudication Application made pursuant to s 17 of the Act, Helcon disputed any liability in relation to the Deduction and stated: –

“On the matter of the damaged sewer, Helcon has not accepted liability for this damage. Our 1st knowledge of the location of the sewer is in an email enclosed which we received from the site’s engineer on the day after the damage occurred. Additionally, in our quotation enclosed under “Exclusions” it states that the builder is obliged to do the “Dial Before You Dig” and which would have identified this sewer, which should be pegged on site to indicate its location. Helcon requests that this amount of $51,000 + GST be waived from being Helcon’s liability.”

The email to which Helcon referred was dated 20 November 2012 (the day after the Incident) and attached a: –

Helcon’s quotation stated, under the heading “Exclusions to the Helcon Steel Screw Piles, to be provided by [Anderson Street]”: –

“Dial Before You Dig”

and

“Site survey”.

In its Adjudication Response served pursuant to s 20 of the Act, Anderson Street justified the Deduction as follows: –

“[T]he tender package explicitly included the sewer locations and this was issued in September 2012 and was known to [Helcon] as is apparent … that [Helcon] accessed the drawing and used the ‘drop box’ to submit the tender….

[Anderson Street] did issue further documents following the incident penetrating the sewer line, but this was an attempt to stop repetition, it was not providing detail of the sewer location for the first time”.

The Adjudicator dealt with the issue as follows: –

“35. [Anderson Street] states … that ‘[it] did issue further documents following the incident penetrating the sewer line, but this was an attempt to stop repetition, it was not providing detail of the sewer location for the first time’.

36. [Anderson Street] states for the first time in the Adjudication Response … that it made the drawings showing the sewer location available to [Helcon] as part of the tender package, in September 2012 via a drop box, a screen shot of which is annexed as Annexure J. [Anderson Street] states: ‘as is apparent from the images at Annex J that [Helcon] accessed the drawing and used the ‘Drop box’ to submit the tender’.

37. [Anderson Street] also states … that the plans specifically note the location of the sewer and they formed part of the tender documents. [Anderson Street] has attached three plans of the sewer at Annexure L which, [Anderson Street] states, were issued in and were part of the tender documents and were available in the dropbox.

38. [Helcon] has not had the opportunity of commenting on the provision of the plans as described by [Anderson Street].

…

41. [Helcon] states in the Written Submissions that the exclusions in the Quotation Document … which [Helcon] submitted to [Anderson Street], indicates that [Anderson Street] is ‘obliged to do the Dial Before You Dig and which would have identified this sewer’.

42. [Anderson Street] refutes this stating … that the quotation does not form part of the contract documentation and states that even if it did, the Indemnity clause of the contract would override this and the Warranty clause would render [Helcon] liable. I am satisfied that the Contract is to be read as a whole and the quotation documentation would form part of that.

43. [Anderson Street] has failed to provide survey reports or other similar proof that the sewer runs precisely in the location and at the depth that the various plans indicate that it runs. I note in the email of 20 November 2012 … that Mr Paget of [Anderson Street] states that the attached sketch shows the ‘approximate existing sewer’.

44. In view of the absence of evidence that the sewer in fact runs precisely where the plans indicate that it runs, I am not satisfied that [Anderson Street] has proved that [Helcon] is liable for the costs incurred by [Anderson Street] when the sewer was breached and that it is entitled to claim the costs from [Helcon] of remediating the damage which …[Anderson Street] alleges … to have resulted from the piercing of the sewer. For this reason, it is not necessary for me to deal any further with the issues raised by [Anderson Street] in this regard”.

Anderson Street contends that the Adjudicator resolved the dispute concerning the Deduction (in Helcon’s favour) on the basis set out at par [43] and [44] of the Determination, and that that basis was one Helcon had not advocated, and of which Anderson Street was given no notice.

“…what an adjudicator is required to do is to decide the dispute between the parties. Under the scheme of the Act, that dispute is advanced by the parties through their adjudication application and adjudication response (which, no doubt, will usually incorporate the antecedent payment claim and payment schedule). If an adjudicator is minded to come to a particular determination on a particular ground for which neither party has contended then, in my opinion, the requirements of natural justice require the adjudicator to give the parties notice of that intention so that they may put submissions on it…

It follows, in my opinion, that where an adjudicator determines an adjudication application upon a basis that neither party has notified to the other or contended for, and that the adjudicator has not notified to the parties, there is a breach of the fundamental requirement of natural justice that a party to a dispute have ‘a reasonable opportunity of learning what is alleged against him and of putting forward his own case in answer to it’.” (citing Lord Diplock in O’Reilly v Mackman [1983] UKHL 1; [1983] 2 AC 237 at 279)

The breach of natural justice must be “material” and be considered in light of the nature of the procedures laid down by the Act. The matter in respect of which submissions were not sought must be “germane” to the adjudicator’s decision: eg John Goss Projects Pty Ltd v Leighton Contractors[2006] NSWSC 798; (2006) 66 NSWLR 707 at [42] per McDougall J.

Helcon’s arguments about the Deduction

Helcon advanced two bases to resist the Deduction.

First, that Anderson Street had not notified it of the location of the sewer until after the incident.

Second, that in any event, by reason of the incorporation of Helcon’s quotation into the Contract, Anderson Street had an obligation to “Dial Before You Dig” and thus an obligation to ascertain the location of the sewer and have it “pegged on site to indicate its location” (see [15] above).

The Adjudicator dealt with an aspect of the second of those arguments at par [41] and [42] of the Determination, where she found that Helcon’s quotation did form part of the Contract.

However, as I read the Determination, the Adjudicator did not go on to consider the implications of that finding; in particular, she did not make any finding as to whether it followed from incorporation of Helcon’s quotation into the Contract that, as Helcon contended, Anderson Street had the obligation to ascertain the location of the sewer, and make Helcon aware of that location by pegging the site.

The Adjudicator dealt with Anderson Street’s response to Helcon’s first argument (that Anderson Street had not, prior to the Incident, notified it of the location of the sewer) in the first instance at par [36] to [38] of the Determination. There she set out Anderson Street’s contention that, not only had it made available to Helcon drawings showing the location of the sewer prior to the Incident (indeed, prior to the Contract) in “the tender package”, but that Helcon had “accessed” those drawings in the course of submitting its tender. Those matters were agitated by Anderson Street in its Adjudication Response (see [18] above).

However, the Adjudicator did not make a finding as to whether Anderson Street’s contentions were correct. All the Adjudicator did was to comment that Helcon had “not had the opportunity of commenting on the provision of the plans as described by” Anderson Street (at par [38] of the Determination).

The relationship between Helcon’s arguments and the Adjudicator’s conclusions

There was debate before me as to the relationship (if any) between these matters and the Adjudicator’s remarks at par [43] and [44] of the Determination.

Mr Kalyk, who appeared for Helcon, submitted that, in par [43] and [44] of the Determination, the Adjudicator was developing the argument which she commenced at par [41] and [42] (that Helcon’s quotation had been incorporated in the Contract) and that she was “not introducing a new matter”.

I do not accept this submission. In par [43], the Adjudicator stated that Anderson Street had “failed to provide survey reports or other similar proof that the sewer runs precisely in the location and at the depth that the various plans indicate that it runs”. In my opinion, when the Adjudicator here referred to “the various plans” she was referring to the plans that Anderson Street contended it had made available to Helcon as part of the tender documents and was making the point that Anderson Street has not proved that those “various plans” were accurate or showed “precisely” where the sewer was. Accordingly, the Adjudicator stated, in par [44] of the Determination, that she was not satisfied that Anderson Street had “proved” that Helcon was liable for the deduction and that: –

“For this reason, it is not necessary for me to deal any further with the issues raised by [Anderson Street] in this regard”.

I do not see the findings made by the Adjudicator in par [43] and [44] of the Determination as having any connection with her findings in par [41] and 42].

Rather, in [43] and [44] of the Determination, the Adjudicator was rejecting Anderson Street’s submission that it had notified Helcon of the location of the sewer prior to entering into the Contract on the basis that if had not proved that the “three plans” which were included in the tender documents were “precisely” accurate.

That was not an argument advanced by Helcon. Helcon’s argument was, relevantly, that it had not been provided with any plans at all.

In those circumstances, in my opinion, the requirements of natural justice required the Adjudicator to give the parties, and Anderson Street in particular, notice of her intention to resolve the matter on this basis. Her failure to do so was in breach of the requirements of natural justice.

I am satisfied that the breach was “material” in the sense discussed above. Had the Adjudicator notified Anderson Street of her inclination to decide the Deduction issue adversely to it on the basis set forth in par [43] and [44] of the Determination, an obvious riposte would have been reference to the terms cl 40.2.1 of the Contract (referred to at [14] above).

For these reasons, my opinion is that the Determination is void.

The Variation

In view of the conclusion to which I have come in regard to the Deduction, it is not necessary for me to deal with this aspect of the matter. However, in deference to the arguments of counsel, I will deal with the issue.

In its Payment Claim, Helcon claimed the following amounts for variations said to have been “100% complete”: –

(a) $51,000 in relation to the “supply and install of piles”;

(b) $1000 in relation to the “surveying of pile locations”; and

(c) $2000 in relation to “additional piles to bridge sewer”.

In its Payment Schedule, Anderson Street disputed Helcon’s claim in relation to items (a) and (c) in the preceding paragraph and stated that the work was “0%” complete.

In its Adjudication Application, Helcon asserted that Anderson Street had agreed to each of the variations but provided no evidence to establish that the work the subject of the Variation had been completed (let alone “100%” completed).

In its Adjudication Response, Anderson Street stated that “[w]hat is in contest is the value and completion of the work” and that “[t]he Adjudicator is faced with an issue of two starkly completing claims, one of 100% complete as at 24 December 2012 and one that the pile work variation had a status of 0% complete as at 24 December 2012”.

The Adjudication Response continued: –

“[Helcon] has provided no evidence to support its assertion. [Anderson Street] has put that assertion in issue. [Anderson Street] has established unequivocally that as at 4 February [2013] the work is still incomplete. [Anderson Street] asserts it has reached partial completion. The onus of establishing the entitlement to payment and correctness of the Payment Claim rests on [Helcon]…[Helcon] has not met that standard in relation to the work claimed as at 24 December 2012.”

The Adjudicator dealt with the competing contentions of the parties in some detail and concluded: –

“73. I am satisfied, as I have set out above, that [Helcon] has properly provided the information to [Anderson Street] regarding the variations required on 5 and 15 November 2012 and that [Anderson Street] accepted the variations as charged and properly instructed [Helcon] to proceed with those variations and that [Helcon] is entitled to claim for those variations in the Payment Claim.

74. I am also satisfied that [Helcon] has provided enough information to [Anderson Street] to enable [Anderson Street] to properly value the variations claimed.

…

76. I am satisfied that by accepting the request for variations and the valuation in the email of 19 November 2012 and instructing [Helcon] to proceed and promising [Helcon] that the formal documentation will follow, [Anderson Street] accepted the valuation of the variations and is bound by that acceptance and [Helcon] was entitled to proceed on that basis.

77. [Anderson Street] has disputed the degree of completion of the variations claimed by [Helcon] in the Payment Claim and stated that they were 0% completed but then acknowledged in paragraph 15 of the Adjudication Response that the pilings are ‘largely supplied and are in place but installation is not complete’. [Anderson Street] asserts it has reached ‘partial completion’.

78. I am satisfied that there was some variation work of value that had been completed by 24 December 2012 and the work was not ‘0% complete’, which I take to mean that the work had not even commenced. [Anderson Street] has not valued the work which had been carried out to 24 December 2012. Even if the work was incomplete [Anderson Street] has not satisfied me of what was incomplete at that date and what allowance should be made for the allegedly incomplete work. I am satisfied that [Helcon’s] valuation should be accepted in the absence of any valuation of the work to 24 December 2012 by [Anderson Street].”

As the Adjudicator found, although Anderson Street had, in its Payment Schedule and in its Adjudication Response, described the Variation as having a status of “0% complete”, it did not dispute that work had been done. Indeed it stated that there was “partial completion”.

In par [78] of the Determination the Adjudicator appears to have regarded Anderson Street as having the onus of showing the extent to which the variation work was incomplete.

It may have been an error for the Adjudicator to come to this conclusion. However, any such error was made within jurisdiction.

Mr Carey, who appeared for Anderson Street, submitted that par [78] of the Determination also revealed that the Adjudicator had not turned her mind to the critical question of the extent to which work was complete.

Mr Carey submitted that the Adjudicator had thereby failed to exercise her duty to “come to a view as to what is properly payable”. Mr Carey relied upon the following passage from the judgment of Brereton J in Pacific General Securities Ltd v Soliman & Sons Pty Ltd at [82]: –

“I therefore respectfully agree with the view tentatively expressed by Hodgson JA in Hargreaves: the adjudicator’s duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contact and the Act and the true merits of the claim, and while the adjudicator may readily find in favour of the claimant on the merits of the claim in the absence of a payment schedule or adjudication response, or if no relevant material is advanced by the respondent, the absence of such material does not entitle the adjudicator simply to award the amount of the claim without addressing its merits, which as a minimum will involve determining whether the construction work identified in the payment claim has been carried out, and what is its value.”

Mr Carey submitted that the Adjudicator had not determined what work had been carried out in respect of the Variations, or its value, and had therefore not addressed the merits of the claim. In effect Mr Carey submitted that the Adjudicator had not made a bone fide attempt to exercise her statutory power under the Act (see Hodgson JA in Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421 at [55]).

In Laing O’Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818, McDougall J, after reviewing the authorities, held that the obligation of good faith required “at least that adjudicators should turn their minds to, grapple with and form a view on all matters that they are required to ‘consider'” (at [34]).

I do not think that criticism can be made of the Adjudicator in this case.

Because of the (perhaps erroneous) view she took as to the question of onus, the Adjudicator found in favour of Helcon in relation to the Variation issue. However, in my opinion, she did address the merits of the matter, indeed in considerable detail.

I reject this aspect of Anderson Street’s case.

Conclusion

The Adjudicator decided the Deduction issue adversely to Anderson Street in breach of the rules of natural justice. The Adjudicator thereby committed jurisdictional error. Accordingly, the Determination is void.

I invite the parties to bring in short minutes to give effect to these reasons.